Washington D.C. — The Securities and Exchange Commission today charged motion picture company Lions Gate Entertainment Corp. with failing to fully and accurately disclose to investors a key aspect of its effort to thwart a hostile takeover bid.

Lions Gate agreed to pay $7.5 million and admit wrongdoing to settle the SEC’s charges.

According to the SEC’s order instituting settled administrative proceedings, Lions Gate’s management participated in a set of extraordinary corporate transactions in 2010 that put millions of newly issued company shares in the hands of a management-friendly director. A purpose of the maneuver was to defeat a hostile tender offer by a large shareholder who had been locked in a battle for control of the company for at least a year. However, Lions Gate failed to reveal that the move was part of a defensive strategy to solidify incumbent management’s control, instead stating in SEC filings that the transactions were part of a previously announced plan to reduce debt. In fact, the company had made no such prior announcement. Lions Gate also represented that the transactions were not “prearranged” with the management-friendly director, and failed to disclose the extent to which it planned and enabled the transactions with the expectation that the director would get the shares.

“Lions Gate withheld material information just as its shareholders were faced with a critical decision about the future of the company,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement. “Full and fair disclosure is crucial in tender offers given that shareholders rely heavily on corporate insiders to make informed decisions, especially in the midst of tender offer battles.”

According to the SEC’s order, the large shareholder had made several tender offers and acquired more than 37 percent of Lions Gate’s outstanding stock. For its part, Lions Gate management believed that allowing the shareholder to control the company was not in the best interest of Lions Gate or its shareholders. The company engaged in an active campaign to discourage shareholders from tendering their stock to the shareholder, and vigorously looked for a management ally to purchase available shares of Lions Gate stock. Lions Gate went on to establish the basic framework for an extraordinary three-part set of transactions that would begin by exchanging $100 million in notes from a holder for new notes convertible to stock at a more favorable conversion rate. The note holder would then sell the notes to the management-friendly director at a premium, and the director would then immediately convert the notes to shares.

According to the SEC’s order, the Lions Gate board of directors approved the transactions at a midnight board meeting on July 20, 2010, while facing an imminent tender offer from the large shareholder. Completed in hours, these transactions allowed the friendly director to obtain control of approximately nine percent of the company’s outstanding stock, effectively blocking the takeover bid.

The SEC’s order finds that Lions Gate then failed to meet its disclosure obligations. First, Lions Gate stated in a July 20 press release and 8-K filing that the transactions were done to reduce the company’s debt, and failed to disclose the effort to foil the takeover bid. Furthermore, Lions Gate management knew that a large, direct sale of stock from the company to the friendly director would have required prior approval from its shareholders under a New York Stock Exchange (NYSE) rule. After the transactions, NYSE contacted Lions Gate to inquire whether the transactions violated the NYSE rule requiring shareholder approval. In response to the NYSE inquiry, Lions Gate said it would disclose additional information. In its subsequent tender offer filings made to the SEC in September, Lions Gate represented that the note exchange was not part of a prearranged plan to get shares to the management-friendly director.

Among the facts admitted by Lions Gate, reflecting the extent to which the company planned and enabled the transactions, include:

Lions Gate did not announce a plan to reduce total debt prior to issuing the press release on July 20, 2010.

Lions Gate amended its insider trading policy at the midnight board meeting to allow the friendly director to immediately convert the notes to stock.

Lions Gate allowed the friendly director to review the new note terms, term sheet, and exchange agreement before they were provided to the note holder.

Lions Gate failed to include other required information in its tender offer filings, including the fact that the friendly director converted the notes at favorable price resulting in the director owning a near 9 percent interest in Lions Gate.

The SEC’s order finds that Lions Gate violated Sections 13(a) and 14(d) of the Securities Exchange Act of 1934 and Rules 12b-20 13a-11, and 14d-9. In addition to the financial penalty, the order requires Lions Gate to cease and desist from future violations.

The SEC’s investigation was conducted by Nicholas A. Brady with assistance from Jeffrey T. Infelise. The case was supervised by Anita B. Bandy and Moira T. Roberts.